In the first half of 2014 the revenue of Royal FrieslandCampina N.V. rose by 3.5 percent to 5,713 million euro. Organic revenue growth amounted to 5.0 percent. Higher sales prices contributed towards the revenue growth. The most robust growth was achieved in China, Hong Kong and the Philippines. The sales volume of infant nutrition increased. Sales volumes of dairy-based beverages, cheese and ingredients decreased due to unfavourable market conditions in Europe, Indonesia and Vietnam. Exports of cheese to Russia also decreased. Profit fell by 60 million euro (36.6 percent) to 104 million euro due to a negative currency translation effect amounting to 44 million euro and pressure on margins for commodities. The pro-forma milk price over the first half of 2014 totalled 44.19 euro per 100 kilos of milk.
Cees ’t Hart, CEO Royal FrieslandCampina:
“The combination of a strong euro, a high milk price, falling sales in a number of Asian markets and general political unrest all affected FrieslandCampina’s results during the first six months of 2014. Despite these developments, higher sales prices led to a further growth in revenue. In the consumer market, infant nutrition, which is one of our strategic growth categories, performed especially strongly.”
Revenue up; profit down due to strong euro and the market conditions
- Net revenue up by 3.5 percent to 5,713 million euro due to higher sales prices (6.4 percent) and acquisitions (1.7 percent) and despite negative currency translation effects (-3.2 percent) and smaller volumes (-1.4 percent). Organic revenue growth was 5.0 percent
- Continued growth in China
- Shrinking markets, in particular in Indonesia and Vietnam, a slow-down of growth in many countries
- Milk supply peaks putting price pressure on commodities
- Operating profit down by 102 million euro (37.1 percent) to 173 million euro; currency translation effect on operating profit amounts to 59 million euro negative
- Profit down by 60 million euro (36.6 percent) to 104 million euro; currency translation effect on profit amounts to 44 million euro negative
- Cash flow from operating activities down to -189 million euro due to reduced profit and increased working capital due to higher prices of the inventories and payments to pension funds
High milk price for member dairy farmers
- Guaranteed price for the Cooperative’s member dairy farmers up to 42.07 euro per 100 kilos of milk
- Pro forma milk price up by 9.1 percent to 44.19 euro per 100 kilos of milk
- Interim pay-out to member dairy farmers in September (75% of the pro forma performance premium): 0.825 euro per 100 kilos of milk
Route2020 strategy on track
- Increased revenue and volume of milk
- 4.2 percent volume growth in infant nutrition for consumer market
- Dairy-based beverages and branded cheese volumes down by 8.6 and 3.9 percent
- Commodities volume up by 7.4 percent
- Further investments in capacity expansion and quality improvements
- Discussions regarding establishment of a new joint venture with China Huishan Dairy Holdings Company Limited in China
Net revenue growth
The higher net revenue was achieved due to higher sales prices and acquisitions (Zijerveld and Den Hollander in May 2013). The net currency translation effect on revenue was 3.2 percent negative (-177 million euro).
Lower operating profit and profit
In the first half of 2014 operating profit fell by 102 million euro (37.1 percent) to 173 million euro. The sales prices of commodities such as foil cheese, butter and milk powder were too low to offset the high guaranteed price for the member dairy farmers. On top of that, difficult market conditions in Asia and Europe plus negative currency translation effects amounting to 59 million euro put volumes and margins under pressure. Operating costs in the first half of 2014 rose by 5.5 percent to 5,544 million euro due to higher raw materials and packaging materials costs (first half of 2013: 5,253 million euro).
Profit over the first half year fell by 60 million euro (37.1 percent) to 104 million euro (first half of 2013: 164 million euro). This drop in profit was due to unfavourable currency translation effects of 44 million euro and higher operating costs.
High milk price for member farmers
The guaranteed price over the first half of 2014 was 42.07 euro per 100 kilos of milk. This 13.6 percent increase compared with the first half of 2013 (37.03 euro) was due to the higher milk prices of the reference companies. The pro-forma milk price over the first half of 2014 totalled 44.19 euro excluding VAT per 100 kilos of milk. This is an increase of 9.1 percent compared with the first half of 2013 (40.50 euro).
Interim pay-out of 0.825 euro per 100 kilos of milk
In September 2014 the Cooperative’s member dairy farmers will receive an interim pay-out for the first time. The interim pay out will amount to 0.825 euro per 100 kilos of milk. This is 75 percent of the pro forma performance premium over the first half of the year. The final settlement will be paid-out in April 2015 on the basis of FrieslandCampina’s results for 2014 and the total quantity of milk supplied by each member during 2014.
Reduced cash flow from operating activities
The cash flow from operating activities fell to -189 million euro (first half of 2013: 168 million euro), as a result of the drop in profit, payments to the pension fund and the increase in working capital due to the higher guaranteed price, which increased the value of inventories and claims. In the first half of 2014 outgoing cash flows for investments, related mainly to the expansion of production facilities, amounted to 279 million euro (first half of 2013: 295 million euro). Most of the investments could be financed from the Company’s own funds. The cash flow from financing activities amounted to 311 million euro (first half of 2013: -98 million euro) due to a higher utilisation of the credit facility. Net cash and cash equivalents fell from 560 million euro (end of 2013) to 403 million euro.
The worldwide offering of milk is expected to increase still further in 2014. How the demand will develop is uncertain. In a number of European countries the markets will remain under pressure. As a consequence of the Russian boycott of dairy products, alternative products and markets must be found to offset the volume of milk exported to Russia, primarily in the form of cheese. FrieslandCampina cannot make any concrete statement regarding the expected result for the whole of 2014.
First half year 2014 results per business group
Consumer Products Europe, Middle East & Africa
- Revenue stable at 1,990 million euro; price increases compensate for reduced volumes
- Operating profit down due to lagging results in Nigeria and the Middle East
- Restructuring in the Netherlands, Germany and Hungary contribute towards reducing costs
- Market shares under pressure in the Netherlands, Belgium and Nigeria
- Market shares of Landliebe, Optimel, Fruttis, NoyNoy, Rainbow and Napolact increase
Consumer Products Asia
- Net revenue at 1,149 million remained at virtually the same level as in the first half of 2013
- Friso infant nutrition achieved further growth in nearly every country
- High prices put dairy-based beverage volumes under pressure in several countries
- Market share under pressure in several countries
- Operating profit fell by 13.8 percent to 169 million euro; the negative currency translation effect was responsible for 48 million euro of this decrease. This was partially offset by growth in China and price increases
Cheese, Butter & Milkpowder
- Net revenue rose by 15.2 percent to 1,489 million euro
- The sales prices of commodities were too low to offset the high guaranteed price
- Operating profit down to -26 million euro
- Investments in the expansion of the butter production capacity at FrieslandCampina in Lochem
- Net revenue fell by 6.1 percent to 850 million euro
- Reduced demand for dairy ingredients and, due to the increased supply, sales prices under pressure
- Operating profit down to 87 million euro due to market dynamics and the high guaranteed price
- Investments in capacity expansion for ingredients
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